Monday, September 26, 2011

Before I discuss the mauling silver prices have been taking lately, I want to share a couple of classified ads that recently appeared in my local paper offering silver coins for sale.

Ad #1: 250 Silver Dimes, $750. How good of a deal is this? Circulated silver dimes (I'm assuming they are circulated) are considered to contain .0715 troy ounces of silver. So 250 x .0715 = 17.875 ounces of silver. Divide $750 by 17.875 for a cost per ounce of $41.958. The seller probably placed the ad when silver was going for $39-$40 an ounce (just last week). Spot silver at the time of this post is at $31.05 so the current worth of each silver dime is $2.22 (31.05 x .0715). Paying the asking price of $3.00 per coin, or a premium of $.78 per coin, is a little steep. I'd pass on this one.

Ad #2: 6 Silver Dollars, 5 Walker 1/2, 5 Silver Eagles $575. let's look at this offer a little closer. Circulated silver dollars are considered to contain .7650 troy ounces of silver, Walking Liberty half-dollars .3575 ounces of silver and Silver Eagles a full-ounce of silver. So total them all up (6 x .7650, 5 x .3575 and 6 x 1) and you have 12.3775 ounces of silver. Divide $575 by 12.3775 and you get an asking price of $46.455 per ounce. Ouch!

To take advantage of either "deal" would require great faith that 1) silver will one day surpass $50 per ounce and, 2) the buyer is willing to buy and hold despite the volatility of silver. I think it will go above that price sometime in the future but there are probably better deals to be had with silver presently in the $30-$31 range.

Now on to the shellacking the price of silver has taken lately. I've discussed this before but there is a world of difference between the silver paper traders and those dealing with physical silver. From all accounts I have read, this drop in prices has U. S. precious metals dealers scrambling to fill the huge demand their customers see as a fantastic buying opportunity. Silver buyers in Canada are of the same mind. In an article titled "Maple Leaf silver coins seeing record demand" a spokesman for the Royal Canadian Mint stated they are on track to raise sales of its silver bullion coins by around 30 percent to 25 million ounces this year. The article is here.

You would never know that physical silver demand continues to be strong by watching the downward action - a probable result of technical paper trading in the futures market. The anti- higher-silver-price crowd certainly flexed their muscles last week - silver had its biggest single-day decline in two decades. More downward pressure came after the CME again increased margins on Friday. How many does that make now?

The U.S. Mint is starting to crank out Silver Eagles again after a slow September start. The total so far for the month is 3,425,500 (year-to-date 32,376,500) with a few more days to go. Still far from January 2011's total of 6,422,000.